Can nuclear deal make Iran a contract manufacturing destination?
Iran is the second-biggest economy in the Middle East and has a large pharmaceutical sector, but geopolitical concerns, doubts over whether a nuclear deal can last and remaining US sanctions continue to make Iran a very dubious proposition for American manufacturers looking for contract manufacturing sites abroad.
Sharing know-how: a no-go
The current nuclear agreement negotiated by the US and other western countries with Iran, even if passed by Congress, doesn’t include any commitment to remove sanctions that may restrict direct manufacturing activities, an expert told Outsourcing-Pharma.com.
Asked about pharmaceutical contract manufacturing agreements, Jack Hayes, a specialist on US sanctions against Iran at international law firm Steptoe & Johnson said:
“That would undoubtedly require transfer of technology and know-how, and US companies won’t be able to transfer their production technologies to Iran or provide service relating to developing technology in Iran without obtaining a specific license from the Office of Foreign Assets Controls (OFAC) – those restrictions would remain.”
Hayes added that even if rules change on production technology transfer, there are other reasons US pharmaceutical companies must proceed with caution when dealing with Iran. Among them is the possibility the US could resume sanctions if Iran doesn’t abide by the terms of the nuclear deal. “Sanctions could be snapped back quickly, so there will be some reluctance for US companies to do business in Iran without adequate contractual safeguards,” he said.
Another barrier, he said, is insuring such business.
“It’s hard to find banks, insurers and re-insurers who will take on Iran business, even though the export and re-export of US-origin medicines and basic medical devices is lawful,” Hayes said.
Under the agreement, foreign affiliates of US companies may be licensed by OFAC to build relationships with their Iranian counterparts, he said, but even that will be complicated because they will need to operate independently so that US persons don’t facilitate or approve of such business.
They’ll also have to undertake due diligence to make sure the Iranian businesses have no relations with designated persons in Iran subject to US sanctions, such as the Iranian Revolutionary Guard Corp. The nuclear deal doesn’t remove US sanctions on certain people in Iran related to supporting terrorism, proliferating weapons of mass destruction and their delivery systems or engaging in human rights abuses.
A local CMO?
A pharma industry insider told Outsourcing-Pharma.com additional barriers include the fact that Iran is in a volatile region and so the political and social risks would be too high for any company to contemplate being reliant on Iranian companies for supply. Also, Iran’s business practices remain suspect. It may be more realistic, the industry source said, for Iran to become a contract manufacturing source for local manufacturers in developing markets rather than try to forge relationships with US companies.
Geopolitics aside, Iran has some advantages in pharmaceutical manufacturing. As of 2010, there were 89 companies producing pharmaceuticals in the country, according to a 2013 study published in DARU Journal of Pharmaceutical Sciences, with a total pharmaceutical market value of about $3.2bn. Domestic production of pharmaceuticals rose at a more than nine per cent annual rate between 1997 and 2010. More than 30 companies in Iran produce active pharmaceutical ingredients (APIs). There are even two privately-owned biotechnology companies in the country.
However, the study also pointed to “low rates of investment, capital asset substitution and scarce attention to modern technologies like pharmaceutical biotechnology” as risks to Iran’s pharmaceutical industry, and concluded that the absence of research has led to a “state of regression” in the domestic industry that has accelerated a drain on the industry’s capital and energy.